Union Budget 2022-23: The government must promote RBI plan to route smaller transactions through on-device wallets on UPI app
India’s burgeoning digital payment industry has shown impressive growth in the last few years, leading the charge of digitalization of payments in the person-to-person (P2P) and person-to-merchant (P2M) segments. Union Budget 2022-23 offers the finance minister an opportunity to further strengthen the digital payment ecosystem and lay down the government vision for financial inclusion through digitalisation.
Pushing digital payments
The pandemic has accelerated the digitisation of the payment industry, augmenting the growth of digital payment platforms. More than 40 billion digital transactions amounting to more than quadrillion rupees were recorded in FY2021 as digital payments emerged as one of the fastest-growing segments among fintech.
To enhance the digital payment ecosystem, the government must address the challenges facing the industry, including, internet accessibility, promoting Unified Payments Interface (UPI) transactions, and lowering transaction costs. The government has taken some laudable initiatives in this direction last year with Rs 1,500 crore fund to further incentivise the industry and offset losses due to the waiver of Merchant Discount Rates (MDR) on UPI and RuPay transactions. The industry will be hoping for similar incentives for minimal transactional costs.
Promote prepaid transactions through UPI
UPI has been at the forefront of the digital payment ecosystem, driving online payments through an easy interface. However, cash usage dominates and despite its wide adoption during the pandemic, UPI still accounts for less than 10 percent of all digital retail payments.
The Budget offers the government an opportunity to leverage UPI to create further inroads in areas with low penetration. We hope the finance minister will promote the RBI’s plan to route smaller transactions through on-device wallets on the UPI app. The wallet will act as a prepaid instrument, thereby reducing the overall volume of bank transactions. This can reduce the chances of transactional failure, leading to higher acceptance among merchants.
Incentivising new business deployment solutions
While UPI has led the digital transformation of the payment industry, we need more innovation through different tech platforms to facilitate inter-bank P2P or P2M transactions. The growth of competing payment platforms will also facilitate innovation and compel legacy payment systems to incorporate embedded online payments, further widening the ambit for the digital payment industry.
More importantly, it will foster innovation in improving access and delivery. With competing platforms, we can expect a bigger push towards last-mile connectivity in newer geographies. Budgetary incentives, including subsidies and tax holidays, can help in new business deployment solutions, prompting companies to raise their R&D investments.
Looping in NBFCs, fintech to widen ambit
NBFCs and fintech like neo banks have shown remarkable success in penetrating underserved populations that have been largely ignored by banks. By encouraging their participation in the P2P or P2M digital banking landscape, the finance minister can play an instrumental role in further widening the digital payment ecosystem and ensure financial inclusion among the unbanked population, thereby making a crucial headway in formalising the economy.
As the digital payment industry stands at a tipping point, the Union Budget can play a critical role in ensuring that the industry can realize its full potential. In doing so, it will make further inroads towards its vision of a Digital India. While schemes like ‘Atmanirbhar Bharat’ were highly successful in bringing more merchants to payment platforms, we still have a long way to go in ensuring a thriving and wide-ranging digital economy.
The author is Business Head & Co-Founder at Mindgate Solutions Pvt. Ltd. Views are personal.